How Monetary Policy influences the property market

screen-shot-2016-10-29-at-5-10-19-pmTweaking the monetary policy including interest rates inevitably impacts the property cycle.

screen-shot-2016-10-29-at-4-59-59-pmOn 13th July 2016, Bank Negara Malaysia (BNM) announced the adjustment of the overnight policy rate (OPR) by 0.25% to 3% (previously, it was 3.25%) at the Monetary Policy Committee (MPC) meeting. The following few days, Maybank and CIMB decreased their BR/BLR by 0.2%.

Ever wonder how OPR, BR/BLR and monetary policy impact our overall economy and property market?

Every country has a central bank. In the US, it is called Federal Reserve (also known as Fed). In Europe, it is the European Central Bank, ECB. In Malaysia, our central bank is Bank Negara.

What are the functions of Bank Negara? A central bank has two most important tasks:
1. To regulate and oversee the nation’s commercial banks by making sure that these banks have enough money in reserve to avoid bank closure.
2. Control over Monetary Policy, which is increasing or decreasing the money supply to either speed up or slow down the nation’s economy.

Monetary Policy is what makes Bank Negara so influential.

Interest rate is the price of borrowing money. When banks give out loans, they expect to be repaid the amount they have loaned out (principal) and a percentage of the principal to cover inflation and to make some profit. That percentage is called interest rate.

Loan Repayment = Principal + Interest

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